Long-suffering policyholders in Equitable Life are set for a windfall after Britain's oldest mutual insurer agreed to sell itself for £1.8bn.

Subject to a vote by members in mid-2019, Equitable Life will be taken over by specialist insurer Life Company Consolidation Group (LCCG). The proceeds from the sale will be distributed to 261,000 policy holders, generating an uplift from 35 per cent to between 60 and 70 per cent.

Established in 1762, Equitable Life came close to collapse in 2000 in one of the UK's biggest financial scandals. It manages assets of £6.3bn, but closed to new business 18 years ago and has since been slowly running itself down.

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Its policies will transfer to LCCG's Reliance Life subsidiary, with the deal due to complete by the end of 2019.

LCCG specialises in life insurance businesses that are closed to new policyholders. It is backed by US-based Oaktree Capital, and has operations in the UK, Ireland and the Isle of Man.

"This is a wonderful windfall for Equitable Life policyholder, who now stand to pick up a nice bonus as the With Profits fund and Equitable Life shuts up shop for good," said Danny Cox, financial planner with Hargreaves Lansdown.

"There's still a lot of wait, but the uplift is so substantial it's well worth hanging on for."

The mutual's near-collapse in 2000 was prompted by guarantees it had given to its customers on the returns they could expect from their investments. The scandal promoted a raft of inquiries and led to the UK government paying more than £1bn in compensation to members because of regulatory failures relating to the insurer.

Customers who have with-profits policies will get the biggest jump, but as part of the deal they will have to convert their with-profits policies - which carry investment guarantees - to policies that are more sensitive to movements in financial markets.